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What Is a Direct Deposit?

Dec 20, 2021
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What Is a Direct Deposit?

In the United States, direct deposit, paired with direct debit, is the closest analogue to what is known in other countries as a simple domestic bank transfer, much like SEPA payments in the Eurozone. It’s a type of electronic funds transfer (or EFT)  from one party to another, made through a network known as an automated clearinghouse, or ACH — which is why a direct deposit is also known as an ACH transfer — which allows for transactions between banks to be processed in batches, lowering their cost. Direct deposits allow for payments to be made cheaply without the use of physical, paper checks. Being particularly suited to regular payments, they are typically used by companies to pay their employees or their vendors, by the government to send tax refunds or social security payments, or by individuals to pay their rent or utility bills, but also simply to send money to other people. 

How Do Direct Deposits Work?

In order to make a direct deposit, payers need to have the name of the payee, the name of the payee’s bank, the payee’s account number, and the payee bank’s routing number. A direct deposit can be set up as a one-off or as a recurring payment. Direct deposits are then processed through the ACH Network in batches, and debiting and crediting instructions are sent to the payer and the payee’s banks, in order to settle the transaction. The whole process usually takes one to three days, but smaller transactions can be completed on the same day if they’re sent early enough in the workday.

Should Direct Deposits Be Used for International Transfers?

Direct deposits can only be made between two US bank accounts, but remittance services like Wise or XE will allow you to provide the funds for an international transfer via direct deposit. Even though this will result in a fee, it is a more cheaper option than making a wire transfer — which will be your bank's default option in making an international transfer for you. Even better, we recommend that you use Monito's comparison engine to find better, more advantageous options for making your international transfers.

Questions You May Have About Direct Deposits

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